Clearwire's Cloudy Future

BURLINGAME, Calif.--Tom Fletcher, an executive with the Portland Trailblazers basketball team, recently tossed out his old Qwest home broadband service in favor of something new: a wireless broadband hookup from start-up
Clearwire
.

The newfangled service gives Fletcher connection speeds twice as fast as what Qwest delivers, he says, for about the same price. Set up was easy: He plugged a small Clearwire
router into a power outlet in his home office, then connected the router to his computer. "There are no CDs you have to download and upload," says Fletcher, who uses Clearwire's service to read e-mail and watch family videos. "You just plug it in and go."

Clearwire, the high-profile venture founded by cellular pioneer Craig O. McCaw, is one potential beneficiary of President Obama's ambitious plan to serve super-fast Internet service to America. Because Clearwire delivers Web access wirelessly, instead of through pricey fiber in the ground, the company could be an attractive candidate to push broadband into previously hard-to-reach, rural areas.

"We're engaged in the process" of talking to the government about a broadband program, says Clearwire Chief Benjamin Wolff. "Mobile broadband is one of the things that could create a fair degree of economic stimulus in this country," he asserts.

Whether the technology will actually work nationwide is another matter. Clearwire's service roll out in the Portland area in early January--only the second U.S. deployment of its fully mobile technology, called WiMax--was delayed for nearly a year. Company officials won't release any data about customer uptake so far. Ditto for Baltimore, the other market where the technology is now in use.

Clearwire's WiMax technology, backed by chip giant
Intel
, is similar to its cousin wi-fi. But WiMax offers citywide wireless coverage instead of access in smaller areas, like coffee shops or airports.

Clearwire has other hurdles to surmount.
Sprint
, which merged its "4G" wireless network with Clearwire's in December and is Clearwire's majority shareholder, has been hemorrhaging customers, losing 3 million in the first three quarters of 2008. In January, Sprint said it would slash 8,000 jobs. Clearwire hopes to sell some products to Sprint subscribers, as well as route traffic over Sprint's network.

Then there's the need for more capital, a difficult problem in the current tight credit markets. Clearwire still may require another $2 billion to $2.3 billion to finish building a nationwide network, even with Sprint's assets. (Wolff now says the company could move forward--albeit more slowly--without additional fund-raising.)

Investors are nervous and have driven Clearwire's shares down about 78% from their level a year ago, a steeper drop than the broader stock market. Intel, which has invested $1.6 billion in the company over several years, took a $950 million hit to earnings in January because of the free fall in Clearwire's stock.

"There haven't been that many wireless national networks built," notes Peter Currie, a money manager and former McCaw Cellular executive who sits on Clearwire's board. "It's hard to build these things." Still, Currie thinks Wolff can parlay Clearwire's valuable wireless-spectrum assets--as well as its partnerships with behemoths like
Google
and
Comcast
--into a money-making service.

Many customers of the new service are happy. The Trailblazers' Fletcher says his service performs well, though he wishes he had a stronger signal. He puts his WiMax router--the device that captures Clearwire's signal from the air and sends it to his computer--near a window to try to maximize signal strength.

Though the broad swath of airwaves controlled by Clearwire gives it astounding capacity to pump data to users, the data is transmitted via shorter wavelength than those used by the big cellphone companies. Shorter waves can have trouble connecting to customers deep inside buildings.

Other Clearwire customers have bigger beefs. A blog, www.clearwiresucks.com, has logged some 1,380 complaints about customer service and reception problems. Most complaints relate to the slower, pre-WiMax Internet service Clearwire has offered for years in dozens of U.S. cities.

The site was put up by Los Angeles tech worker Tim L. Lopez, who says he had trouble with Clearwire's service soon after he signed up for it in 2005, when he was living in California's Central Valley. After about 30 days, his Web speed slowed dramatically, crawling along slower than a dial-up connection. Lopez also was upset that Clearwire customer service representatives seemed to blame his laptop--and not Clearwire's service--for the sub-par performance.

Clearwire reps say it takes all customer complaints seriously and works "to address any issues as quickly and fairly as possible." The company recently launched a feed on mobile-blogging service Twitter to respond directly to customer concerns, says spokeswoman Susan Johnston.

Still, the Better Business Bureau said it processed 436 complaints about Clearwire in the last three years; it rated the company a "C-." Many wireless companies have struggled with customer service, too: Although Qwest, a Clearwire competitor in Portland, got an "A+" rating from the Better Business Bureau even though the much larger company had 3,543 complaints on record during the same period. Wireless carrier T-Mobile got a grade of "F." Sprint PCS earned a middling "C."

Clearwire's service, when it's working well, does have advantages over its competitors'. First off, it's mobile: Customers who buy a plug-in modem for their laptops from Clearwire, or who have a computer pre-installed with Intel's WiMax chips, can access the Internet at super-fast speeds outside the house. That means they can catch up on e-mail or watch YouTube videos on park benches, or while riding moving trains at 60 miles per hour. Portland customers can expect download speeds nearly four times as fast as the "3G" data services offered by cellular companies, at least while they're at home, Clearwire says.

But the service remains imperfect. Right now, if someone wants to use Clearwire broadband outside his city's metro area, he's out of luck. Eventually, Clearwire customers will be able to piggyback on Sprint's slower, non-WiMax broadband service when they're out of town, but not yet. Once Clearwire builds out a bigger network, obviously, customers can use it in different cities.

The longer Clearwire takes to roll out its service, though, the easier it will be for rivals like
AT&T
and
Verizon
to catch up with their own wireless-broadband offerings. Those cellphone companies, as well as lots of other big mobile operators overseas, have cast their lot with a competing technology called LTE, which stands for Long-Term Evolution. It's an upgrade from existing 3G cellular networks and could eclipse WiMax if more and more device makers start building products compatible with LTE instead.

Clearwire chief Wolff knows he faces an uphill battle. "We are the underdog," he says. Clearwire's customers, and shareholders, just hope the company doesn't get stuck in the slow lane.